Question
Consumption-Savings Plan Exercise Assume Jacob is 30 years old and has 35 more years to work. Currently he doesnt have any savings. His annual income
Consumption-Savings Plan Exercise Assume Jacob is 30 years old and has 35 more years to work. Currently he doesnt have any savings. His annual income in real terms is $65,000. Assuming a life expectancy of 85 years, real interest rate throughout of 5% and desired retirement income of 70% of pre-retirement income, prepare a life time consumption-savings schedule for Jacob. Specifically calculate the following and then show excel schedule showing lifetime plan. a) Annual savings and annual consumptions during the 35 working years, and Accumulated wealth at the end of the working years (beginning of retirement years). b) If Jacob plans to take a vacation at the end of his age 80 and it costs additional $20,000, and he wants to leave $30,000 for charity at the end of his life. How would these affect annual savings and consumptions? Re-prepare the schedule. c) How would the financial plan change if Jacob already has savings of $15,000 today?
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